dApps: An easy guide to decentralized applications

What is the decentralized web?

The decentralized web, or Web3, is a disruptive vision of the Internet where data is not controlled by major (corporate) entities.

The ethos of Web3 dictates that the technological change will remove the need for central authorities and intermediaries. In return, people will have more control over their personal data and digital assets in a new era.

In today’s data economy, information is stored on centralized servers owned by large data service providers. Using Web3 technology, data can be maintained by many different nodes (computers and servers), creating a network that serves as the foundation for different products and services to run on.

The most known use case in this vision is cryptocurrency, which leverages Web3 technologies like blockchain. Although it hasn’t been the replacement for FIAT currency as some may have hoped, it is a sign that Web3 is more than just a concept. And more novel use cases are likely to surface as the technology develops.

What is the difference between Web3 and dApps?

Web3 and dApps are terms related to the decentralized internet but refer to different things. Web3 is the broader concept of a new type of internet, and dApps are specific types of applications that can exist within the Web3 framework.

As mentioned in the previous section, Web3 describes the next generation of the internet. Web3 aims to create a data economy where information is connected in more meaningful and useful ways and where users have more control over their personal data.

On the other hand, dApps are applications that run on a decentralized network (often a blockchain network) rather than being hosted on centralized servers. DApps are a part of the Web3 vision, as they represent a new type of software that can function without being controlled by a single entity and interact with blockchains and other Web3-native technologies.

Basic overview of dApps

Today, most applications on our phones and computers are centralized, which means that everything contained and published on the app, including its database, is controlled by a single entity. Some examples of centralized apps are Instagram, Threads, Twitter, etc. DApps are fundamentally different in their structure.

DApp development is usually “more democratized” and run by a group of developers and users. In such cases, a single person or entity does not have complete control over the application. Although many dApps are open-source and invite basically everyone to join the team, some level of centralization is often needed to steer development and reach milestones.

DApps share many similarities with traditional apps in terms of their functionality. Like traditional apps, dApps can provide various services, including social media and gaming platforms, financial services, and marketplaces. However, the key difference between dApps and traditional apps lies in their underlying architecture and interaction with blockchains.

Not familiar with blockchains? Here’s a short explanation:

Blockchain technology is integral to Web3, enabling users and applications to interact with other users without intermediaries. Blockchains are a way of storing and sharing information in a secure, transparent, and decentralized way. Like a digital notebook that anyone can read and write, but nobody gets to erase or alter what has been written. The notebook is maintained on a network where everyone has the latest copy, making it more robust against maliciously entered changes.

The dApp user interface can be as familiar and intuitive as the one on a traditional app. Currently, access often requires a so-called crypto wallet for identification, such as MetaMask. Besides storing cryptocurrency, a crypto wallet helps users maintain pseudonymity and power over personal data.

However, users who aren’t technically oriented may find using wallets cumbersome. But, as the technology matures, the access threshold to using wallets and dApps will also lower.

How do dApps work?

DApps work by using smart contracts to perform different functionalities. They are self-executing agreements that automate actions when predefined conditions are met, like when X happens, do Y.

For example, when a buyer receives and signs off their shipment, the smart contract code could immediately release funds to the seller.

Smart contracts are often stored directly on the blockchain, meaning anyone with access can read and verify its contents. This type of transparency increases trust in the technology because the information is visible, and changes will be recorded in the contract’s history. The openness can also reduce the need for intermediaries, which is one of the benefits we’ll handle in the next topic.

Different types of Web3 dApps

Web3 dApps can be differentiated between three types, or layers, depending on the level of interaction.

Type 1 dApps are foundational applications that have their own unique blockchain. They are not dependent on any other blockchain or protocol. Bitcoin and many other cryptocurrencies are an example of Type 1 dApps, which operate on their own blockchain, independent of any other platforms.

Type 2 dApps are built on top of Type 1 dApps like Bitcoin using their own protocols and tokens. These types can serve as platforms for decentralized services like exchanges or marketplaces.

For example, Uniswap is a decentralized exchange allowing users to trade tokens between each other. The platform uses the Ethereum blockchain and its own protocol and token (UNI). When a user starts a trade, a smart contract on the Ethereum network triggers and completes the transaction.

Type 3 dApps are, again, built on top of Type 2 dApps. Similarly, they make use of the protocols and tokens from the previous layer, but they can also issue their own tokens.

For instance, the decentralized finance platform Aave lets users lend and borrow different cryptocurrencies. Aave also has its own protocol and token, allowing users to accumulate interest over time.

A straightforward way of understanding the differences is to imagine Type 1 as the internet, Type 2 as a video-streaming platform or service like YouTube, and Type 3 as a personalized playlist for your YouTube account.

What are the main benefits of dApps?

The main benefits of dApps vary based on their specific features and the blockchain they interact with.

While blockchains are typically praised for their openness and transparency, there are scenarios where restricted access is necessary. Similarly, while it is possible to create a general outline of the benefits of a dApp, it’s important to note that not all benefits may apply to every decentralized application.

1. User pseudonymity

dApps use crypto wallets to identify users instead of personal details. This allows users to register and log in to different platforms without giving any more personal details than necessary. Although one can trace another user’s action on a public blockchain, the connecting information is tied to the wallet instead of an identity, allowing people to maintain privacy.

2. Transparent actions

Because public blockchains are open to all, users can verify whether an application is doing what it claims or is engaging in harmful activity, like draining a user’s wallet of crypto assets. However, making malicious actions visible does not stop them from happening. Users should always be cautious when they access dApps using their wallets.

3. Robust against failures

Because dApps run on a network, like a blockchain, they should be much more robust against sudden downtimes than traditional applications hosted on a few central servers. A complete shutdown would require every node in a network to fail simultaneously, which is unlikely if the network itself is strong enough.

What are the main disadvantages of dApps?

Naturally, dApps also have their unique challenges that steam from the characteristics of decentralization and current iterations of blockchains. These primarily relate to taking scalability and maintaining a functioning application, which begins to require more and more resources from developers and the technology itself.

1. Scalability

As user numbers and transactions grow, the number of nodes to upkeep the network also increases. Handling a large volume of data can lead to network congestion and slower performance. In addition, users have to pay for so-called gas fees that trigger a transaction, and those fees can grow significantly during major congestion.

Different remedies to scalability include:

• Creating secondary blockchain layers.
• Sharding the blockchain into smaller pieces.
• Inventing novel consensus mechanisms to streamline blockchain performance.

2. Maintenance

The lack of central authority means each network node is ultimately responsible for keeping itself up and running. If you’ve ever delayed your phone or computer’s update for several days, you’ll probably get the gist of this issue. The lack of proper maintenance and mismatching versions can lead to inconsistencies and errors, disrupting the application’s operations.

Tools for maintenance issues include:

• Automated testing frameworks and continuous integration tools attempt to catch issues early to ensure future changes won’t break the dApp.
• A modular design allows individual components to be updated or replaced without affecting the entire system. This also makes maintenance takes more manageable.
• On-chain governance allows the community to vote on possible changes, incentivizing active participation in maintaining the network.

3. User experience

Compared to traditional, centralized applications, dApp use may become clunky with a crypto wallet login and slow under network congestion. In addition, help support may be limited or non-existent for projects without a central authority, requiring users to be technically knowledgeable. Without proper UX, the new decentralized technology won’t become accessible to larger audiences.

UX can be improved by:

• Benchmarking the UI/UX to traditional applications to create user interfaces that people can navigate intuitively.
• Educating people and improving the onboarding process helps individuals get over possible adoption thresholds.
• Interoperability between dApps can create a more seamless experience. For instance, a digital identity or crypto wallet could be used for multiple applications, similar to a Google account enabling access to a multitude of services.

Use case examples of dApps

The following list briefly showcases the different possibilities of dApps across different industries.

• Financial services: dApps may be used to facilitate peer-to-peer financial transactions, like exchanging currencies or transferring assets. This can decrease the need for financial institutions like banks, making transactions faster, cheaper, and more efficient. Use cases in this sector are often referred to as decentralized finance or DeFi.

• Supply chain management: A decentralization application could enable goods tracking through a supply chain. Each step in the process can be recorded on the blockchain, providing transparency and accountability to the process from manufacturing to delivery.
• Real estate: dApps may facilitate the purchasing and selling of property and land by recording transactions on a blockchain. Because every transaction and change is registered, people may easily check a real estate’s ownership history and other information that may be included, such as modifications or building schematics.

• Healthcare: dApps could help store and track patient records, improving the efficiency and accuracy of record-keeping. In addition, patients could gain more control over their own health data. For example, they could easily give new access to their health data when moving to a new country or changing service providers.
• Gaming: dApps can change the gaming industry by enabling true ownership and trade of in-game assets. These assets can be recorded on the blockchain, providing a transparent and unchangeable record of ownership, preventing disputes and fraud. Moreover, dApps can enhance gaming experiences by allowing for cross-game compatibility of assets, creating a more interconnected gaming ecosystem.

Summary

I hope this article gave you an idea of what decentralized applications are and how they differ from current, centrally operated apps. Developers wishing to find and retain more users engaging with their product must also focus on aspects that make the applications user-friendly, not just technically feasible. And that applies to any app!

When implemented correctly, businesses have a lot to gain with Web3 and decentralization. It’s always worth exploring new technologies and investigating their potential in your domain to gain an edge over competitors.

Interested in our approach to Web3? Read more about our services and building a decentralized app for your needs.